Pensions

Pension Advice

Unless you are happy to see your standard of living reduce sharply in retirement, you will need to ensure; you, your employer, or both, are funding for your retirement. The state pension provides for basic living expenses and is not intended to provide for a replacement income in retirement.

Over the last couple of decades people’s living standards have risen in line with the increased levels of earnings. If these living standards are to be continued and enjoyed in retirement, an adequately funded pension will need to be in place.

Another important factor is that we are living longer. Life expectancy rates for people aged 65 have increased by approximately 3 years between 1990 and 2006. The average life expectancy for a male aged 65 years in 2006 was 81.6 years of age. The average life expectancy for a female age 65 years in 2006 was 84.8 years of age. If this life expectancy rate continues to increase, it will lengthen the retirement period which will require a replacement pension income.

The bottom line is that you need to save for your retirement. If you do not fund for your pension, you will have a dramatic downward shift in living standards when you retire.

Probably, the Best Investment Structure in the World?

Despite being the best investment vehicle and tax management structure, there still appears to be reluctance by the majority of people in Ireland to face their pension deficit. The range of pension investment products has widened considerably over the last number of years, with pension investors able to access all types of investment class asset. Whether it be equities, commodities, gold, deposits, bonds or property, pension investors have never had such a wide choice of investments for their pension fund.

If you are on the top rate of income tax – What other investment returns 41% after year 1? It can be argued that some of this immediate tax benefit will be clawed back in future years when we draw down on our pension fund, but the tax relief is available now, who knows what the rate of tax will be in 10/20/30 years time.

The government’s national recovery plan outlines the government’s intention to reduce the level of tax relief available to pension contributions. There has already been a reduction in the maximum earnings that can be used for the purpose of calculating the maximum personal contributions that can attract tax relief.

Start Early

The key to financial security in retirement is to have a properly funded and managed pension. Many people have reached middle age without having any pension provision in place. The sooner an individual starts a pension, the better. Starting early is one of the most important aspects of pension planning.

For example; to target a retirement income of €10,000 per year at age 65 (in today’s money), a person who just started their pension would need to contribute €302 a month at age 20, €431 per month at age 30, €669 a month at age 40 and €1,152 a month at age 50. Clearly people who start younger can spread the funding of their pension over a longer working period.

The government does recognise that some people may start their pension later in life. So the closer you get to retirement, the greater the amounts you can contribute and gain valuable tax relief.